Deducting Wining and Dining without an Invoice
Silly you, did you forget to mark a receipt from wining and dining with details on whom you invited and the reason for the meeting? Ts, ts. On top of that, the tax office is now denying the deduction of input tax from this invoice because it is not willing to assume a business purpose. Well, the law requires you to have ledgers in order to have an eligible deduction. FG Berlin-Brandenburg, however, came up with a legal "workaround" in its judgment of April 9, 2019 (re 5 K 5119/18).
The plaintiff, a self-employed management consultant, claimed VAT credits of € 641 for his entertainment business expenses with his business partners for the year 2013. The tax office refused the input tax deduction, as the necessary entries on the occasion and the participants of the entertainment on the hospitality documents were missing. Although the plaintiff subsequently came up with the missing entries on the entertainment bill, four years later when appealing the assessment, the tax office still refused to accept the deduction of input tax.
Tax Office refused the Deduction of Input Tax
For the non-deductible 30% of reasonable and proven entertainment expenses, however, §15 Ia cl. 2 UStG provides an exemption for input tax. The tax office holds that the remedy of the missing formal requirements took place only in the appeal proceedings, i.e. 4 years after the invitation, is excluded.
The FG disagreed with the tax office and obliged the tax office to accept the deduction. In the opinion of the court, the refusal of input tax deduction solely on the basis of non-compliance with formalities constitutes an unfair burden for the taxpayer. Due to the paramount importance of the input tax deduction for a tax-neutral sales taxation, the ECJ with its judgment of September 15, 2016 (re C-518/14) generally imposes restrictive formal requirements to deny input tax. Thus, an invoice adjustment with retroactive effect can also be made a long time after the first invoice was issued.
Input Tax Deduction
According to the wording of §15 Ia cl. 2 UStG, deduction of input tax for entertainment expenses is possible without restriction if "reasonable and proven expenses" are involved. The wording of the law thus merely demands general proof and does not explicitly refer to §4 V cl. 1 no. 2 (and therein) cl. 2 EStG.
Despite the practical FG judgment, it should always be ensured that the required information on the hospitality voucher is provided from the outset (in a timely manner). German tax offices do not easily forgive "mishaps".
Full Deduction of Costs for Entertaining Freelancers